Economic Activities and Systems: A Comprehensive Analysis
1. Economic Activity
Economic activity is the process by which we obtain the products and services that meet our needs. It encompasses three phases: production, distribution, and consumption. Economics is the science that studies the relationship between people’s needs and desires and the means used to meet those needs.
Economic activities are varied but can be grouped into three sectors:
- The Primary Sector includes efforts to obtain food and raw materials from the natural environment (fisheries, agriculture, livestock, and forestry).
- The Secondary Sector includes activities to transform raw materials extracted from nature into products (industry, mining, construction, and energy production).
- The Tertiary Sector covers a wide range of activities that do not produce a material good but provide services to society (trade, transport, health, education, banking, and media).
2. Agents of Economic Activity
For economic activities to be carried out, the intervention of three agents is necessary:
- Families: They participate in production by contributing labor and capital, and in consumption, since they consume goods and services.
- Companies: They engage in the production of goods and services for financial gain. We can distinguish different types:
- Public: Owned by the State.
- Private: Owned by persons or entities.
- SME: Small or medium-sized enterprises.
- Multinational: Corporations operating in several countries.
- Single: Owned by a single person.
- Cooperative Societies: Belonging to more than one person, can be anonymous or limited.
- The State: It fulfills basic economic functions such as:
- Developing laws regulating economic activities.
- Encouraging the private sector through subsidies.
- Creating companies in public sectors.
- Providing strategic services.
- Providing jobs.
3. Productive Factors
- Labor: Human activity to produce goods and services.
- Natural Resources: Products offered by nature (wood, water, earth, animals, plants, minerals, or energy sources).
- Capital: Resources used to produce goods and services. There are three types of capital:
- Physical: Material elements (buildings and machinery).
- Human: Training and qualifications of employees.
- Financial: Money needed to establish or maintain a company.
- Technology: The set of procedures used to produce goods and services. We distinguish three types:
- Manual Production: Where the human being provides the strength and manages tools.
- Mechanized Production: Where the machine provides the force, but the human being handles tools.
- Technified Production: Where the machine provides the strength and controls tools, while the human oversees the operation of the machine.
4. Economic Systems
An economic system is the mode of production of goods and services in a society and the way in which benefits are distributed among its inhabitants. Currently, there are three economic systems.
- Subsistence System: The traditional system where families produce everything they need to cover their basic needs, and only the excess is sold or exchanged. It occurs in underdeveloped societies.
- Communist System: An economic system that does not recognize private ownership of the means of production. The state controls all aspects of the economy as it owns the business, decides what and how much to produce, sets the prices of products, and decides how to split the profits. Until recently, it occurred in many countries (former USSR and Eastern Europe), but today it has been reduced to Cuba, North Korea, Vietnam, and a few others.
- Capitalist System: A system of free market economy. It has four basic characteristics:
- Private property in the media.
- Seeks to maximize profits.
- The Law of Supply and Demand regulates the number of products elaborated.
- Competition exists.